Business leaders urge Osborne to step in and help ailing manufacturing sector in his summer Budget

Summer budget: BCC has urged Chancellor Osborne to step in and help the manufacturing sector

The British Chambers of Commerce has urged Chancellor George Osborne to help the struggling manufacturing sector in his summer Budget this Wednesday.

It comes after a report by the body suggested the UK is experiencing 'two tier' economic growth, with firms in the services sector performing much better than manufacturers.

A survey of 7,500 firms by the British Chambers of Commerce showed that jobs, investment, confidence and cashflow all increased in services in the second quarter of the year.

In contrast, there was a continued slowdown in manufacturing, which was facing many headwinds.

John Longworth, director general of the BCC, said: 'These figures indicate that we will see continued growth in the economy, thanks mainly to the strength of the services sector.

'But the difference in results also raises the prospect of the UK experiencing two-tier growth, with modest expansion in services and markedly slower growth in manufacturing and goods.

'The manufacturing sector has battled against structural problems for years but, even in that context, the scale of the slowdown being experienced by our manufacturers is a surprise and a concern. Part of the reason might be down to the strength of sterling against the euro and the dollar, but currency fluctuations are not the only issues at stake.

'We have three structural problems that are also hurting our manufacturers and growth companies - chronic underinvestment, exuberated by lack of capital and lack of long-term incentive, underinvestment in infrastructure and insufficient focus on helping more businesses succeed in new markets overseas.

'The Budget, the forthcoming spending review and the remainder of this Parliament should focus on tackling these issues for the long-term.'

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Last week's data from Markit showed British manufacturing growth last month slowed to its weakest rate in more than two years.

Markit said its British manufacturing purchasing managers index fell to 51.4 in June, the weakest reading since April 2013, from a downwardly revised 51.9 in May.

The figures also showed manufacturing output rose just 0.1 per cent in the first quarter.

The decline has been put down to a strong pound, which has strangled European demand for UK exports.

Leading the way: It's a good time to be working in the service sector

The pound has gained around 2 per cent in June alone against the world's other major currencies.

Howard Archer, chief UK and European economist at IHS Global, said: 'This is a disappointing survey showing UK manufacturing expansion at a 26-month low in June; it reinforces the impression that UK manufacturers are being held back particularly by weak foreign orders.

'In particular, sterling’s strength against the euro is seemingly constraining UK manufacturers’ ability to capitalize on recently improved domestic demand in the Eurozone. This echoes the CBI’s industrial trends survey for June.'

Falling behind: Manufacturing has been hit hard by the strong pound

At the same time Markit/CIPS services purchasing managers' index rose to 58.5 in June after dipping to a five-month low of 56.5 in May from an eight-month high of 59.5 in April.

Activity among services firms, which include marketing and recruitment companies as well as restaurants and hotels, increased in June despite slightly lower levels of new work and employment.

Ahead of the summer Budget, Osborne has told companies that they will not be forced to raise wages to offset £12billion of benefit cuts to the working poor.

The axe is expected to fall most heavily on benefits paid to working families: tax credits and housing benefit.

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BCC urges Osborne to help ailing manufacturing sector in his summer Budget